Thursday, November 22, 2012

In this post I welcome guest blogger Estelle Shumann.

We’ve known for quite some time that online learning is less expensive than most traditional educational options. In today’s post, Estelle Schumann, a longtime Mikeroeconomics reader, highlights the role that online college courses might play in alleviating the crunch of student debt. Estelle is an education writer whose work frequently appears on the e-learning website http://www.onlineschools.org.

Online School Programs Provide an Alternative to the Rising Costs of a University

More students are enrolling in baccalaureate programs every year. At the same time, the cost of college has risen, as well. The situation has made it difficult for students coming from poor families to receive a competitive degree. In essence, this upward surge in costs has stratified the educational system. It has become clear that students coming from affluent families have a significant advantage over those who do not.

Historically, it was much easier for families to afford a college education. Kevin Carey, the director of the Education Policy Program at the New America Foundation, reported that the discrepancy between the rise in education prices and increase in the average U.S. salary has quadrupled the cost of college since the 1980s. Instead of sending four children to school, a family today is often lucky if it can send one; likewise, instead of sending one kid to school, a family can afford to pay one-quarter of the bill. The remainder often falls on the student in the form of loans and other financial assistance.

Costs notwithstanding, students today are often well aware of just how beneficial college is. Loans are now more available than ever before to meet the demand of the students who need them. Consequently, student debt has skyrocketed. According to National Public Radio, more than $1 trillion is now owed on student loans, and two-thirds of students who have received baccalaureate degrees took out loans in order to attend college.

Scholarships and other means of financial aid help to some extent. According to CNN Money, these financial resources bring the average tuition cost of private colleges down by an average of $15,530 per year. Public-school students receive an average of $2,500 per year. However, an increasing amount of funding has come from merit-based scholarships, which are more often awarded to students from higher income families anyway. That exacerbates the stratification problem.

The current job market makes the issue even worse. Graduates cannot find jobs with salaries that allow them to make headway on their loans. According to a report by the Associated Press, 53% of recent college graduates were either unemployed or underemployed. These kids are unable to start paying off their loans and are forced to watch the amount they owe slowly rise while they look for work.

Students who cannot find gainful employment after they graduate build compounding interest on the debt they owe. In fact, many are so burdened that they do not recover financially. Americans over the age of 60 account for $36 billion of total student debt. These individuals have been financially handicapped by the debt they accrued forty years ago. Though relatively rare (3.5%), these are clear-cut cases in which college was a bad investment. If it was a bad investment for students 40 years ago, then take a moment to consider how many of today’s students will find themselves still catching up after they pass retirement age, 40 years from today.

If the situation is not reversed, then either education will become more rare in low- and middle-class households, or even more student debt will accrue, leaving many citizens insolvent. Looking online is a solution for some, but it is not always an equal option. Whether through government intervention or otherwise, an effective solution should be found so that all students, whether they come from affluent backgrounds or not, can afford an education. As an aside, Marginal Revolution author, Tyler Cowen, explains that online learning is better than traditional.The St. Louis Fed publishes the Regional Economist that explains why Private and Catholic schools outperform public.